ESG in 2025: What to Expect in Trump 2.0

Although coined in approximately 2004, the term “ESG” — short for Environmental, Social, and Governance — did not receive widespread adoption until the mid 2010s. It quickly went viral, becoming a politicized buzzword with vocal proponents and detractors. Stripped of the surrounding hype and rhetoric, however, the term is straightforward: In the investment context, it encompasses a variety of material risks and opportunities that companies and their boards need to navigate and that investors must understand to assess and quantify these risks and opportunities reflected in their portfolios.

Simple enough: ESG-related issues can have material impacts on companies, so investors seek information on these issues to better understand them. Given that ESG-related concerns are difficult to quantify and often span time horizons beyond quarterly and even annual financial cycles, they often elude typical financial models — making robust disclosure all the more important.

But complications have arisen over time for various reasons, including that ESG is an ill-defined term that captures many different topics, such as: worker safety; workplace conditions; diversity, equity and inclusion (“DEI”); climate change; waste; and product safety. The term also captures governance topics like shareholder rights, board composition and executive compensation. As such, ESG came to mean nearly everything and therefore also almost nothing.

In addition to ESG being too broad a tent, it has also become highly politicized. The term has been misused to imply that those considering ESG issues are engaged in corporate advocacy on social issues, impact investing, or other progressive or “woke” agenda outcomes — or attempting to penalize industries such as energy or defense. Many critics also argued that ESG proponents were promoting “stakeholder capitalism” — that is, prioritizing the interests of constituencies such as a company’s employees, vendors, or surrounding communities over the financial interests of the company’s shareholders.

Against this backdrop, ESG has gone from drawing praise in C-suites across the developed world¹ to one of its foremost advocates, BlackRock CEO Larry Fink, declaring in 2023 that he would no longer use the term.

November’s Republican electoral sweep could seem to portend ESG’s imminent demise. But this ignores the reality that ESG considerations can have a material impact on financial and operational performance, and therefore, that companies and investors will continue to seek information about these considerations.

Boards and management at many companies have worked for years to collect, assess, and act on ESG-related data, and those efforts show no signs of abating. Many countries, especially in the EU, and the UK continue to adopt and implement ESG disclosure and compliance regimes. Blue states like California have enacted significant climate-related laws that will impact many companies, even those based outside the state.

In this article, we explore five key predictions for ESG — in light of, and in some cases in spite of, the second Trump administration.

Prediction 1 – Litigation, Litigation, Litigation

Background

To date, in the investment context, the demand for better ESG disclosure has been driven by the world’s largest institutional investors, particularly “the Big Three”: Vanguard, BlackRock, and State Street (which collectively often hold between 20 percent and 30 percent of many companies’ stock). These shareholders have pressed corporate issuers to enhance their ESG-related governance practices and to disclose key environmental and social risks and information, thereby mitigating risk or addressing the needs of a company’s stakeholders.

A byproduct of this increased investor attention included increases: in shareholder proposals, in institutional investor scrutiny of “disfavored” industries such as high greenhouse gas (GHG) emitters,² in pressure on companies to take proactive stances on social issues, and in calls for greater ESG disclosure in Securities and Exchange Commission (“SEC”) filings or sustainability reports.

In response to these demands, as well as other complex drivers like consumer perceptions and younger generations making retirement investment decisions premised on values-driven investing, many companies and asset managers made ambitious ESG-related statements and marketed investment products as ESG-aligned. However, in the past two years, these statements and products — even when made in good faith — have faced harsh criticism from pro- and anti-ESG quarters as being mere virtue-signaling puffery, or antithetical to a corporation’s purpose to pursue profit maximization, respectively.

With the Big Three adopting a lower profile — and with remote prospects for new federal ESG legislation or regulation in the second Trump administration — a new front line has emerged for those seeking to promote or roll back ESG. We anticipate that this new frontline will be in courtrooms — in the form of lawsuits alleging greenwashing, anticompetitive behavior, and reverse discrimination, among other litigation theories.

Predictions

With legislative and regulatory avenues mostly foreclosed under the second Trump administration, ESG-related litigation risk for public companies will likely increase as various parties seek to pursue pro- or anti-ESG agendas via the courts. Specifically, we anticipate the developments below:

• Republican state officials and members of Congress will claim a mandate (or at least perceive a friendly environment for) ESG-related litigation based on antitrust theories. These types of actions likely would be premised on allegations that institutional investors and other key constituents in the ESG ecosystem, like proxy advisors and activist non-governmental organizations (“NGOs”), have colluded to impose their agenda on Corporate America and the market, and as a result, have harmed competition and consumers. Since the November election, we have already seen emboldened action from Republicans on Capitol Hill. These actions include a demand for information from more than 60 U.S.-based asset managers regarding their involvement with the Net Zero Asset Managers (“NZAM”) initiative. These efforts appear to be having their desired effect, with numerous financial institutions withdrawing from investor-climate initiatives such as NZAM, the Net-Zero Banking Alliance, and the Glasgow Financial Alliance for Net Zero. Just days ago, on January 10, 2025, Blackrock announced that it was withdrawing from NZAM.³ We anticipate that these inquiries may lead to follow-on litigation from state attorneys general premised on similar theories, and potentially private litigants asserting claims along similar lines.⁴
• On the other hand, states led by Democrats are likely to pursue litigation to champion certain ESG initiatives. Many of the names being floated as potential 2028 presidential candidates, including governors Gavin Newsom of California and JB Pritzker of Illinois, have developed a reputation for advocating on behalf of progressive causes, including ESG issues like climate change. We anticipate that they and other Democratic governors or state attorneys general will continue to pursue lawsuits based on greenwashing theories, alleging that companies and investors have made false or misleading claims about their ESG performance or products, and thereby have deceived or harmed investors, consumers, or the environment. For instance, California has already commenced litigation against oil majors on theories of climate coverups, as well as on issues like the plastics crisis, and they have included novel damages claims, including disgorgement of profits. We can expect more of this in 2025 and beyond. For instance, immediately following Trump’s election in November, Governor Newsom called a special session in California to “Trump proof” the state, which includes earmarking dry powder funds for litigation against the Trump administration. However, we expect this firepower will also be directed at industries and causes deemed to be harmful to the environment or lacking sufficient urgency to address societal challenges. Certain legislation, like the California climate reporting laws, while subject to litigation themselves, will likely create new and fertile grounds for the plaintiff’s bar based on allegations of misstatements concerning compliance.
• Private plaintiffs are likely to also pursue both ESG and anti-ESG litigation. We have already seen a spate of greenwashing claims arising from alleged overstatements of green corporate action (such as a class action against Delta Airlines for misrepresenting its sustainability characteristics by failing to adequately disclose its use of voluntary carbon offsets, and broad-based criticism of the voluntary carbon markets generally).⁵ On the other hand, we also have seen private litigants sue companies based on claims of reverse discrimination for their various DEI initiatives.

Importance

Given that federal legislation and regulation is unlikely for the next four years, lawsuits will likely fill some of the resulting vacuum. To prepare, companies should adopt or enhance sound governance practices, including processes to collect, assess, and validate ESG-related information and data.

Disclosure should be grounded in objective fact where possible, and projections or predictions should be made cautiously and with appropriate caveats and risk-factor language. Investment advisors and asset managers likewise should ground statements regarding the ESG characteristics of investment funds in objectively verifiable facts. Of course, no amount of preparation or care will prevent the litigation entirely, particularly for companies in certain industries, such as energy or financial services, or those with consumer-facing brand names that can make more attractive targets. In short: Buckle up, because the ESG landscape will likely grow more litigious in the coming years.

Prediction 2 – The Anti-ESG Playbook Now Exists and ESG’s Critics are Emboldened.

Background

The anti-ESG playbook is multifaceted. At the state level, numerous Republican-led states passed laws targeting ESG initiatives in recent years. These laws included a mandate that state treasurers compile a “blacklist” of investment advisors deemed to have “boycotted” the energy industry, banning such advisors from managing state pensions or other assets unless and until removed from the list. Another species of legislation barred any investment advisor managing public funds from voting shares other than for the purpose of maximizing the pecuniary interest of the shares’ beneficial owners. And, as we discuss above, a third page of the playbook involves Republican state or federal congressional lawsuits or investigations into various “pro-ESG” initiatives such as investor climate coalitions.

Private actors also launched highly effective attacks on ESG — particularly in the area of DEI, which accelerated after the Supreme Court ruled that race-based affirmative action programs in college admissions violated the Constitution. While that ruling did not directly implicate corporate DEI initiatives, it emboldened opponents of corporate DEI initiatives to bring claims against companies based on reverse discrimination theories — and they have had recent success in asserting lawsuits against private actors on similar reverse discrimination grounds.

Recently, the anti-ESG side has added a new weapon to its arsenal — threats of negative publicity and reputational harm for companies that set DEI commitments or other ESG goals. These campaigns have quickly and conspicuously led to rapid change and spurred major companies to walk back their commitments on DEI-related initiatives.

Predictions

We expect that anti-ESG actors will continue to deploy and refine their anti-ESG playbook. Beyond the fact that the playbook is now well developed, ESG critics have wind at their backs, including recent high-profile wins such as the NASDAQ board diversity rule being struck down by the Fifth Circuit in December.

We also expect to see more PR campaigns aimed at compelling companies to step back from their ESG-related commitments. Corporations are generally risk-averse and naturally fear antagonizing swaths of their customers or other stakeholders, and many have been buckling under these pressure campaigns. As more companies pull back from these commitments, others will likely feel safer to do so as well.

Importance

Although the anti-ESG movement is ascendant, companies should be cautious about how they navigate the pro- and anti-ESG forces at play. For the moment, gun-shy institutional investors will be far less likely to push an ESG agenda out of concern for their own legal and reputational risks, which almost certainly means that companies will face less pressure from their investors to pursue ESG-related initiatives. Companies that turn away from these initiatives might mitigate risks of finding themselves in the crosshairs of anti-ESG elected officials.

But political winds change, and many pro-ESG pressures may remain — most likely from customers or employees. Companies would be well advised to calibrate their stakeholder expectations and plan strategically, because while conceding to anti-ESG advocates may help in the short run, pulling back from sustainability or other pursuits that are in the long-term interest of the company may introduce different risks. In short, if you are a leader at a company, tread carefully — you almost certainly cannot please everyone all of the time.

Prediction 3 – Both Pro- and Anti-ESG Shareholder Proposals Will Continue at Elevated Levels but Garner Low Support.

Background

Shareholder proposals have been a key tool for ESG activists to attempt to influence corporate behavior and policies. In recent years, Environmental and Social (“E&S”) proposals (covering topics such as climate change, board diversity, human rights, and political spending) and Governance proposals (director tenure, board composition, and shareholder rights) have increased in number and scope.

Several factors have driven this increase:

1. A more permissive SEC regulatory framework under Staff Legal Bulletin (“SLB”) 14L that required inclusion of proposals that address a “significant social policy,”
2. The use of proxy proposals as a low-cost means of amplifying a favored E&S issue of concern for an activist NGO,
3. Emboldening successes in 2019–2022 for these proposals — often winning the support of major proxy advisors.

Yet ESG proposals, particularly E&S proposals, have received significantly lower support over the past two years.⁶

Anti-ESG proposals have also faced a similar significant surge of submissions in the last couple years. But despite the high levels of media coverage these proposals often receive, they have historically won low levels support at the ballot box. This is, in part, due to institutional investors and proxy advisors; while under pressure themselves from anti-ESG activists, these voters have not swung around to active opposition of ESG either. The anti-ESG movement is clearly causing ESG advocates to be much more cautious, but it has generally not won the hearts and minds of institutional investors that continue to oppose anti-ESG proposals in overwhelming numbers. Anti-ESG proposals almost never crack 10 percent support.

Prediction

We expect that ESG shareholder proposals will continue to be submitted at a high rate over the next few proxy seasons, as ESG activists seek to maintain their pressure and visibility on corporate issuers. However, under a new SEC chair appointed by President Trump,⁷ SEC staff priorities will almost certainly change, making ESG proposals far more likely to be excluded by companies from proxy materials. That was the case in administrations before Biden’s, where companies often obtained no-action relief with respect to excluding a shareholder proposal, including on the grounds that the proposal sought to micromanage the company’s ordinary business. We anticipate that SLB 14L will be formally amended to make it clear that issues of social importance may be excluded by companies, consistent with historical norms.

We expect that the SEC’s more restrictive approach to shareholder proposals (characterized by no-action relief being granted more frequently) will likely lead to exclusions of proposals starting in the latter half of 2025 and into proxy season 2026 and beyond. As a result, many of these proposals will never reach a shareholder vote, leading, in the coming years, to a chilling effect of these proposals being brought in the first place.

For anti-ESG advocates, this would be a double-edged sword. Indeed, companies would be able to exclude both anti- and pro-ESG proposals from their proxy materials, claiming that they are merely a means for publicity and attempts at micromanaging the company. In short, we can expect to see heightened pro- and anti-ESG proposals at least this year, likely with numbers leveling off and then decreasing over the course of the second Trump term.

Importance

Shareholder proposals have a significant impact on corporate strategy and resourcing (particularly in legal departments) and receive significant attention from board members and senior management. Failure to take action against a passing proposal — or even a proposal that garnered significant support but did not cross the 50 percent threshold — can lead to higher percentages of votes against incumbent directors.⁸ With Trump’s SEC likely to revert to its historical stance on companies’ ability to exclude such proposals, E&S proposals will likely decrease over the course of the Trump presidency. This may provide welcome relief to many corporate issuers, but caution is warranted: Pressure on E&S topics could manifest in other ways, such as product boycotts or employee relations issues, as those dissatisfied with the status quo may find novel ways to bring these issues to the fore (see Prediction 4).

Prediction 4 – Corporates Will Walk Back Their ESG Commitments in 2025 and Beyond.

Background

When companies began racing to announce ESG-related targets in goals at the beginning of the decade, society was in a different mood. Many companies were jumping on the ESG bandwagon, interest rates were historically low, and pursuing profits and purpose seemed something that could be done without debilitating trade-offs. And because of incomplete data, technological advancement assumptions, overconfident consumer behavior predictions, and the long time horizons to achieve stated goals (like Net Zero goals with 2040 or 2050 end dates), it is unclear whether companies had a reasonable basis to believe the stated goals could be achieved in the time frame established, even if the goal was set in good faith. For many companies, their ability to achieve stated goals remains uncertain and a work in progress.

Now, reality has set in: The operating environment is much more complex, there are real threats to companies for pursuing polarizing goals that may be at odds with their businesses, and the political zeitgeist has clearly shifted.

Prediction

Many companies are likely to walk back ESG goals by adjusting or abandoning targets. Six factors will play an outsize role:

1. many goals, while set with good intentions or to keep up with the crowd, were aspirational and reality is now setting in;
2. 2025 is a natural interim milestone date to disclose progress on long-term goals, and the difficulty of simultaneously maximizing profit and pursuing initiatives that could be competitively disadvantageous is forcing a reckoning this year;
3. there is safety in numbers and as more companies backtrack on their goals, others feel less risk in doing so;
4. some companies will perceive the reputational risk of pursuing ESG goals (particularly DEI goals) to be higher than the risk of abandoning them;
5. companies may fear that the risk of liability for greenwashing is high now that many goals are off-track, so rather than continue to reassert that they are progressing against non-viable goals, they may choose to reset or recalibrate to more attainable targets; and
6. given the prevailing political climate, companies may conclude that the time to quietly (or loudly) walk back an ESG goal is now.

Importance

While companies are likely to adjust ESG targets, they should do so with caution. Abandoning a previously disclosed goal may allow a company to focus on near-term operational performance without ESG distractions, but doing so comes with risk.

First, shareholders or regulators could scrutinize whether reaching the previously articulated goal was ever realistic for a company, leading to challenges that the goal was a material misstatement. Second, the pendulum could swing back toward ESG supporters, and companies that walked back goals could face repercussions from shareholders, customers, employees, or regulators. Third, near-term expedience should not prevail over the long-term strategic needs of the company. If a company is considering adjusting a goal, it should do so carefully and be prepared to explain why it made the adjustment, know that it may face blowback, and be confident that the adjustment is right for the business – not just at the moment but over a time horizon that is right for the company’s strategy.

Prediction 5 – Vacuum for Federal ESG Legislation Will Make US State Actions and Non-US Regulation the De Facto Standards Applicable to Most US Companies.

Background

Before the 2020s, most ESG disclosures were voluntary. But this changed rapidly, beginning around 2021, when many non-U.S. jurisdictions, identifying the demand for accurate and comparable disclosures and pressing for private industry to act on global issues like climate change, began legislating mandates over ESG reporting and activity. Under the Biden administration, ESG was a key priority for the U.S. federal government — from the re-entry to the Paris Agreement, to the signature Inflation Reduction Act, to the now-on-hold (and likely dead) final SEC climate rule.⁹ This pro-ESG stance was largely trending in the direction of many other developed nations, particularly in the European Union.

President Trump’s election means that the trend of the United States converging with the EU and other jurisdictions’ disclosure regimes will likely come to a halt. Even so, certain blue states have been forging ahead with their own regulations, which may have a long-arm effect even on U.S. companies with a limited nexus to the state. Companies that do business in Europe or other countries — or that even have customers doing business in these parts of the world — may similarly be captured by non-U.S. regulatory frameworks.

Predictions

We expect that the federal vacuum characterized by an absence of ESG laws and regulation will cause U.S. states and international actors to fill the gap and effectively set the standards for ESG matters. Specifically, we anticipate that:

• Certain U.S. states likely will enact or enforce their own ESG laws and regulations. These states may also join or form coalitions or compacts with other states or countries to coordinate and advance their ESG goals and initiatives. They may also challenge or resist the federal government’s or private industry’s attempts to preempt or interfere with their ESG actions.
• Non-U.S. jurisdictions, especially countries in the European Union, will adopt or implement more ambitious and comprehensive ESG laws and regulations. For instance, the EU’s Corporate Sustainability Reporting Directive (CSRD) will require many companies that do business in the Eurozone to comply with a complex disclosure scheme, including reporting on “double materiality,” a concept very much at odds with the United States’ focus on financial materiality. Double materiality encompasses not only financial or other material impacts on the company (that is, the U.S. version of materiality), but also the materiality of the company’s external impacts.
• The SEC climate rule, prior to its imminent demise, likely would have been harmonized with EU regulations to some degree such that sufficient disclosure in one jurisdiction would generally meet the reporting requirements in the EU. Now that the SEC climate rule is almost certainly dead, the EU rules, along with those California and other states contemplating similar laws,¹⁰ will become the de facto regulations that many U.S. issuers need to comply with if they do business in those zones — and they almost certainly do, either directly or indirectly.
• Because the federal government’s rules will not create a U.S. standard, a patchwork of ESG regulations will affect corporate issuers and likely will lead to inconsistent and costly data collection, governance, verification, and reporting activities. While a federal standard in the United States would not completely have eliminated differences in the various regulatory schemes, it likely would have led to more comparable data than the fragmented system set to emerge in the coming years.

Importance

While some may herald the demise of the SEC climate rule, companies will need to develop many of the reporting controls and procedures that would have been necessary to comply with that rule in order to adequately report in the jurisdictions where they are required to do so. Of course, challenges remain for companies that may be subject to multiple disclosure regimes that, while trending toward convergence, still retain distinct and at times inconsistent requirements. As with any disclosure issue, companies should have an objective and, where possible, documented basis for disclosure, particularly in areas where data collection and assessment remain a work in progress. The increased amount of public disclosure that these regimes require will almost certainly elevate litigation and regulatory enforcement risks for perceived inaccuracies or inconsistencies, and thus caution in this brave new world of non-financial reporting is strongly advised.

¹ In Q2 2021, CEOs mentioned ESG in earnings calls 155 times. By Q4 2023, that figure had fallen to 29.

² For instance, many major investors joined various climate-focused industry and advocacy groups, like the Net Zero Asset Manager (NZAM) alliance or the Climate Action 100. Over the past few months, these groups have seen high-profile defections, in part due to political pressure campaigns and litigation risks.

³ On January 13, 2025, NZAM announced it was undertaking a review of the initiative following recent developments and would, in the meantime, be suspending activities tracking signatory implementation and reporting. Additionally, NZAM plans to remove the commitment statement and list of NZAM signatories from its websites alongside signatories’ targets and related case studies.

⁴ One such suit was filed in November 2024: Texas Attorney General Ken Paxton sued Blackrock, Vanguard, and State Street for allegedly conspiring to artificially constrict the market for coal through anticompetitive practices. According to the press release accompanying the lawsuit, these firms “utilized the Climate Action 100 and the [NZAM] Initiative to signal their mutual intent to reduce the output of thermal coal.”

⁵ Greenwashing-analogous litigation is also likely to target ESG areas other than the environment. For instance, litigants have already brought several “AI-washing” suits alleging that companies overstated their ability to harness AI for the benefit of their businesses. Investors sued for federal securities law violations based on allegedly overly optimistic statements regarding an AI-powered home price estimate tool that turned out to be unreliable in forecasting home prices. Similarly, investors sued Innodata Inc. and some of its officers, alleging that the company falsely represented that it used AI-powered operations for data preparation when, in actuality, it relied on manual labor.

⁶ For more detail on the underlying trends, see our synopsis of proxy season 2024 in our Quarterly Securities & ESG Updates publication, starting on page 4.

⁷ As of this writing, Trump has indicated an intention to appoint former SEC Commissioner Paul Atkins to serve as the chair of the SEC. Based on his previous tenure on the Commission, Atkins is expected to be critical of ESG proposals and will almost certainly seek to overhaul SLB 14L.

⁸ The two major proxy advisory services, ISS and Glass Lewis, recommend votes against board members when companies fail to take appropriate action in response to a proposal receiving sufficiently strong shareholder support for a proposal — and that number can be as low as 30 percent. Many leading institutional investors have similar voting policies.

⁹ The SEC climate rule would have struggled to survive legal challenges even before the election results, with the Eighth Circuit drawing the multiple cases that were filed immediately upon the finalization of the rule, resulting in its current stay pending adjudication. Now that Trump has regained the White House, we can expect that it will either resume its death in the judiciary or the new SEC and/or Congress may embark on a complex route to formally repeal it. Either way, the SEC climate rule has virtually no chance for survival for at least the next four years.

¹⁰ As of this writing, New York, Illinois, Washington, and Minnesota have pending climate disclosure legislation that is similar to the recently enacted laws of California.